Iraq rolled out the red carpet on Wednesday for a historic visit by the Kuwaiti prime minister, the first high-level Kuwaiti official to travel to Baghdad since Saddam Hussein’s regime invaded the neighboring emirate two decades ago.

A military honor guard greeted the Kuwaiti delegation, dressed in flowing robes and headdresses, while a band played the Kuwaiti and Iraqi national anthems.The image stood in marked contrast to Hussein’s Iraq, which in 1991 invaded the emirate after a series of oil disputes and then annexed it as Iraq’s 19th province.

20 years after the Gulf war rescued Kuwait

A US-led coalition drove Iraqi forces out of Kuwait 20 years ago next week after the deposed and later executed Iraqi leader rejected a United Nations ultimatum to withdraw. After Kuwait backed Iraq in the Iran-Iraq war of 1980 to 1988, relations between the two soured over Iraq’s debts to oil-rich Kuwait.

But the animosity between the tiny, privileged emirate and its huge, powerful neighbor runs even deeper.

At one of the last Arab summits before the US-led Iraq war, at a meeting of the Organization of the Islamic Conference in March 2003, then Iraqi vice president Izzat Ibrahim al-Douri threw the summit into an uproar by calling a Kuwaiti cabinet minister a monkey. Although the invasion is believed by most Iraqis to have been wrong, as well as a serious blunder, many here believe the Kuwaitis were engaging in economic warfare against them.

A new Iraq that won't threaten its neighbors

While relations between the two countries are still far from warm, the Iraqi government has gone to great lengths to show that this is a new Iraq – one that will never again threaten its neighbors.

Although Iraq’s Arab neighbors still view the country and its Shiite-led government with suspicion, the drawing down of US forces and a new Iraqi government that includes more Sunnis has led to improved relations within the region.

Neither the Kuwaiti prime minister nor his Iraqi counterpart spoke publicly Wednesday, but Kuwaiti foreign minister Sheikh Mohammad al-Sabah and the Iraqi foreign minister said in a statement that the two countries were committed to settling their differences.

“We are neighbors – we are destined to be neighbors and we are destined to work together that is why we made a decision to remove any obstacles to a strong Kuwaiti-Iraqi relationship,” he said in brief remarks to the media. He reiterated the Kuwaiti emir would attend the Arab League summit planned in March, which will be held in Baghdad for the first time in decades.

Remaining disputes

Iraqi Foreign Minister Hoshyar Zebari said the two countries had agreed to a ministerial-level committee to address remaining disputes. The biggest of those is compensation that Iraq is still paying to the emirate for the invasion and seven-month occupation.

Another outstanding issue – demarcating the two countries' maritime borders at the head of the Gulf – flared on Monday with a deadly gunfight between an Iraqi fishing boat and the Kuwaiti coast guard.

Both sides say the boat was in their own territorial waters. A coast guard officer was shot dead and the fishing boat sunk in the skirmish, which could have derailed the long-awaited visit. Instead, both Iraqi and Kuwaiti officials said it illustrated the need to settle the boundary issue.

Last year, the two countries agreed in principle on production sharing from oilfields that span the border, including the giant Rumaila field. One of Hussein’s pretexts for invading Kuwait was the accusation that Kuwait was using slant drilling to take more than its share of oil from the shared fields.

Iraq has also agreed to return looted property from the invasion, including parts of the Kuwaiti national archives, which along with other documents were moved by the truckload to Baghdad after the invasion.

Heated debate over reparations

But the most intractable issue so far has been the amount of compensation Iraq still owes Kuwait stemming from the invasion.

Most countries have forgiven debts incurred by the previous Iraqi regime but Kuwait maintains that Iraq needs to pay more than $20 billion more in war reparations.

Iraq argues that it needs the money for reconstruction. Former Oil Minister Hussein al-Shahrastani has said compensation paid by Germany to France and Britain after World War II was less in current figures than what Iraq has paid to Kuwait. The UN Secretary-General has tried to persuade Kuwait to invest in joint ventures in Iraq in lieu of some of the compensation.